You need to consider the scope of the variables' definitions. A variable is only known within the {} that enclose its definition. Outside of the enclosing {} it is not known. Read about "scope" for more info.

Basically move the definitions of the variables to the same level as where you are trying to reference them.

For example sum is at the highest level in main(). The others are within a for loop.

Try debugging your code by adding printlns to show variable values as the code is executed. For example add one before an if test to show the values of the two variables that are being compared.

Play computer with your program. Do the statements one by one and write down the results of each statement on a piece of paper as you go thru the program. You should be able to see where your logic problem is.

That means you must do it in two steps. First step: sum the numbers, second step divide

And only then comes step 3: find the numbers that are lower/higher than the average (calculated in step two). Doing those elementary steps greatly simplifies your loops, i.e. you don't have to try to cram everything in one big loop.

You did cram everything in one big, complicated loop; try to execute it by hand and see how the value of variable average changes and influences the outcome of variables above and below. Do those calculations afterwards when the value of variable average is known.

Okay I've separated it into 2 for loops but I'm still having problem with the out put:

Enter the scores(negative number to end)
Score 1: 1
Score 2: 2
Score 3: 3
Score 4: -1
Results
------
Average is 2.0
Number of scores above or equal to average is 1 // this should be 2
Number of scores below average is 2 // this should be 1

Add some printlns to show what numbers are being considered above the average and what are below the average.
For example add this for the above if test:
System.out.println("above=" + number[i] +", average=" + average);

The output will show you how your if tests are working

If that doesn't show what is happening, keep adding printlns to show ALL the numbers you are working with.
That is what I had to do to find the bugs in your code.
Keep adding printlns until you see what is wrong.